Kaiser Chiefs management company in bold bid for Sanctuary

The rock management company behind the Kaiser Chiefs has lodged an audacious takeover approach for Sanctuary, and is claiming the support of 40% of the troubled music group's shareholder base.

Aim-listed MAMA yesterday urged the Sanctuary board to open talks on an all-share takeover proposal submitted nearly a fortnight ago. MAMA said it had not received "any meaningful response" from its much larger competitor and will consider going hostile if Sanctuary does not cooperate.

"While the board of MAMA Group would prefer to work with the Sanctuary board ... it is considering proceeding with the possible offer, whether or not the possible offer is, or will be, recommended for acceptance by the board of Sanctuary," MAMA said.

MAMA, whose assets also include the Channelfly rock venue business, plans to sell off Sanctuary's back catalogue which includes albums by Morrissey and Iron Maiden, and return the estimated £60m proceeds to Sanctuary shareholders. Recorded music is not expected to feature strongly - if at all - in a combined MAMA and Sanctuary group.

MAMA declined to reveal the value of its approach, but it is expected to be no more than Sanctuary's current market capitalisation of £42m. Sanctuary was rescued by a £110m share issue, but its long-suffering investors were burned months later by the group's fifth profit warning in nearly two years. Shares in Sanctuary now trade at 19p, less than half the rights price of 50p.

Sanctuary could not be reached for comment yesterday. It is understood that no discussions have taken place between the two camps, but the Sanctuary board replied to the approach from MAMA 's advisers with a letter stating only that it "noted" the proposal, with no indication of whether it was interested in talks.

Sources close to the situation said yesterday that Sanctuary's shareholders, who include institutions such as Fidelity and Goldman Sachs, would probably accept a full-cash takeover offer to end their tumultuous involvement with the group. The MAMA camp claims that 40% of the Sanctuary investor base wants the board, chaired by the former British Airways boss Bob Ayling, to start talks.

MAMA was founded in 2002 by co-chief executives Dean James, former chief executive of the Mean Fiddler gig business, and Adam Driscoll, founder of Channelfly. It is less than one third the size of Sanctuary, with a market capitalisation of £16m.

Under its takeover proposal, Sanctuary will be streamlined even further and the enlarged group will be reconfigured around a three-tiered structure of live music, merchandising and artist management.

In a statement yesterday, MAMA said Sanctuary was suffering an "ongoing erosion of shareholder value" and needed "swift and effective action" to prevent further deterioration of the share price.

Sanctuary expects to make a loss of up to £22m in the year to September after the group reported poor trading and higher than expected asset writedowns. The scale of the latest profit trading threw into doubt the potential £491,000 payoff for Andy Taylor, the group's founder, who was ousted as chief executive in May following an investigation into Sanctuary's accounts.

This month, Sanctuary sold its urban music management arm, MW Entertainment, back to its founder Mathew Knowles, father of Beyonce Knowles. The deal was one of the first initiatives by the new chief executive, Frank Presland, who is also Elton John's manager.